BBVA in 2012

13LGD for Autos Finanzia, BBVA Spain by nationality and seasoningForeignDomesticLGD rates80%70%60%50%40%30%20%10%0%Up to 1 year From 1 to 2 years From 2 to 3 years From 3 to 4 years From 4 to 5 years From 5 to 6 years More than 6 yearsSeasoning• Time elapsed between the default event and EAD (exposure at default). There are portfoliosin which LGD depends on several axes, as is the case of BBVA Bancomer, where the LGD ofcredit cards grows with the time in default and increased EAD (Chart 14).14BBVA Bancomer’s credit card LGD, based on the quarter in default and exposure at the time of default (EAD)More than150,000mexican pesosBetween 30,000and 150,000mexican pesosBetween 8,000and 30,000mexican pesosBetween 2,000and 8,000mexican pesosLess than 2,000mexican pesosLGD rates120%100%80%60%40%20%0%Not in default 1Q 2Q 3Q 4Q 5QEADProgress in building LGD scorings and ratings is becoming increasingly important in order to adaptLGD estimates to social changes and the economic situation. These estimates allow new factorsto be included without losing the robustness of the information and make it possible to obtainmodels that are more sensitive to improvements or deterioration in the portfolio.In the BBVA Group, different LGDs are attributed to the outstanding portfolio (default andnon-default), according to combinations of all the significant factors, depending on the featuresof each product and/or customer. This can be seen in Chart 13, where LGD is explained accordingto the seasoning of the contract and its nationality.Finally, it is important to note that LGD varies with the economic cycle. Hence, two conceptscan be defined: long-run LGD (LRLGD), and LGD at the worst moment in the cycle, or downturnLGD (DLGD).LRLGD represents the average long-term LGD corresponding to an acyclical scenario thatis independent of the time of estimation. DLGD represents the LGD at the worst time of theeconomic cycle, so it should be used to calculate economic capital, because the aim of EC is tocover possible losses incurred over and above those expected.Credit risk99